Ontario needs talent with diverse skills for innovation

August 23, 2017

The Institute has long called for innovation as a remedy for Ontario’s low productivity growth. Innovation policies encourage businesses to discover new ideas and execute them. Improving human capital—the skills and talent of Ontario’s population—is also key to stimulating innovation. However, achieving inclusive innovation calls for Ontario to change its approach to human capital in two ways: adopting a broader view of the skills needed for innovation, and ensuring Ontario has the talent to grow innovative start-ups.

Stronger skills lead to inclusive innovation

Human capital is undeniably important for innovation. A smarter and more skilled population will be better at coming up with new ideas that power the economy. There are strong empirical links between improving human capital and higher incomes, productivity, and living standards.

Investing in education also boosts innovation without exacerbating inequality. Human capital investments mean less of the population falls victim to “skill-biased technical change” that favours high-skilled workers and is blamed for much of the rise in inequality. Having more high-skilled workers in each company could also increase the diffusion of innovations across firms because more educated workers will have an easier time adopting new technologies. Given the emerging evidence linking firm-level and labour market inequality, this greater adoption of innovations could reduce income inequality.

An expanded view of innovative skills

Skills improvements offer potentially huge benefits from inclusive innovation. However, human capital-focused innovation policy needs to include two more components: a wider skills approach than STEM (science, technology, engineering, and mathematics), and a focus on top-level talent.

STEM skills are crucial for innovation because almost all inventions—from better brake pads to more efficient accounting software—are rooted in scientific and technological advances. Yet, STEM skills alone are insufficient for boosting innovation. Ontarians must also improve their business and soft skills, which are needed to commercialize and sell products and scale-up operations. While there is no evidence of a shortage in STEM workers, there is a lack of business and management knowledge in the STEM community.

This expanded view of skills is especially important given the make-up of Ontario’s economy. For example, an academic study of 20 countries found that only 13.6 percent of finance sector workers that are involved in innovation had studied engineering or sciences. Even in manufacturing only 50.7 percent of innovation-related workers had a STEM degree.

How to teach the skills for innovation

Ontario’s Highly Skilled Workforce Expert Panel recommends promoting practices that teach “the competencies that are necessary for the current and future economy.” Students can build valuable business and soft skills (such as teamwork, adaptability, and communication) through experiential learning opportunities. The Panel also recommends increasing exposure to STEM during K-12 education to give all students a strong foundation.

Management is crucial for innovation

As the Institute explained in a previous blog post, greater commercialization is part of the recipe for ensuring innovation is inclusive. Strong management is key to commercializing innovations and therefore, human capital innovation policies should also focus more on the role top level talent plays in boosting innovation.

In this way, Ontario’s current talent pool is wide, but not deep. Ontario’s students have high test scores and the provincial system of colleges and universities is very strong. For example, the University of Waterloo has become one of the main recruiting grounds for the most successful Silicon Valley technology companies like Google and Amazon. Yet, firms in Ontario still struggle to find highly-talented and experienced individuals to help scale-up their businesses. One survey found that four of the top five challenges identified by Canadian entrepreneurs were related to management capabilities. This problem is particularly severe in Ontario’s technology sector, where 60 percent of founders and executives rated it their highest priority challenge.

How to attract talent

To address this talent shortage, the province should increase the management talent of Ontario’s existing labour force. In Working Paper 12, Management matters, the Institute found Ontario managers have lower educational attainment than our peers, and also less diffusion of management best practices.

Ontario should also draw more talented immigrants. The province is an attractive place to work and live and this should be emphasized and advertised. It has strong social infrastructure, a stable political climate, and a reputation for multiculturalism and openness to newcomers. More skilled immigrants could be attracted by streamlining the visa process and retaining more international students after graduation. These policies, among others, were explored in Working Paper 28, Immigration in Ontario. There are also financial incentives to attract high-end talent such as lower marginal tax rates (especially on the stock options usually used to reward early start-up employees), although these measures must be weighed against their potential to reduce the government’s capacity to redistribute the benefits of innovation.

Ultimately, what will retain and attract talented workers to Ontario is the presence of other skilled individuals and successful firms, so it is important to kick start this virtuous circle. Increasing the skill sets of Ontario’s innovators and ensuring that Ontario has the management talent to grow its innovative firms will lead to inclusive innovation that benefits all Ontarians.